Paying dividends from a limited company: a 2026 checklist

Paying dividends from a limited company involves more than moving money into your personal bank account. Before making a payment, check that the company has sufficient distributable profits, follow its decision-making rules and prepare the records that explain who received what.

That matters whether you run a consultancy in Bromley, a growing business in London or a company elsewhere in the UK. A healthy bank balance can make a withdrawal feel affordable, but it does not establish that the payment is a lawful dividend.

This guide explains how to approach the decision, what paperwork to keep and when to ask your accountant for help. It focuses on ordinary owner-managed private companies, with practical examples rather than a one-size-fits-all recommendation about how much to withdraw.

1. Check the profits available for dividends

The starting point is the company's distributable reserves. Under section 830 of the Companies Act 2006, distributions are limited to accumulated realised profits that remain available after accumulated realised losses and earlier distributions are taken into account.

In everyday terms, look at the whole relevant profit position, including amounts brought forward. A profitable month does not automatically cancel an older loss. Equally, profits retained from earlier years may be relevant even if this month's trading has been quiet.

Start your review with a request for an up-to-date profit calculation. Ask what period it covers, which adjustments are still outstanding and whether earlier dividends have been deducted. Write down the answers before choosing the payment amount.

2. Separate the bank balance from the profit calculation

Cash tells you what is in the account today. It does not tell you what remains after liabilities, tax and accounting adjustments. A recent customer payment might relate to income already recorded, while borrowing can increase cash without creating trading profit.

Use a second, practical check alongside the accounts: list the payments the business must make before its next reliable cash receipts. Include suppliers, staff, tax bills and essential operating costs. Decide what buffer the company needs if a customer pays late.

This cash forecast is a planning tool, not a substitute for the distributable-profit calculation. Keeping both together makes the decision easier to explain: one addresses the accounting limit and the other tests whether the proposed withdrawal leaves the business enough working cash.

Illustrative example: £24,000 in the bank is not a £24,000 dividend

Imagine a small company with £24,000 cash. Its accountant confirms £6,000 of available profits brought forward and £12,000 of additional realised profit after the appropriate tax provision and adjustments. It has already paid £7,000 in dividends against those profits.

On those simplified assumptions, the remaining distributable amount is £11,000: £6,000 plus £12,000 less £7,000. The owner cannot use the £24,000 bank balance as the dividend limit.

Suppose upcoming payments and the company's chosen cash buffer together require £18,000. Only £6,000 of that bank balance is then spare under its forecast. A £4,000 proposed payment fits within both figures, subject to the other checks below. These invented figures illustrate the method; they are not a recommendation for your company.

3. Use accounts that support the decision

HMRC's guidance on dividends and company law explains that the calculation must refer to relevant accounts. These may be annual, interim or initial accounts, depending on the circumstances. Not every accounting gain is a realised profit available for distribution.

For an owner-managed business, a useful preparation routine is to reconcile the bank, enter outstanding purchase invoices and review balances that look unusual. Give your accountant details of unpaid customers, recent asset purchases and withdrawals already made. An incomplete bookkeeping dashboard can give a misleading picture.

Ask for the calculation and supporting reports to be saved together. If the trading position changes materially before payment, revisit the decision. A screenshot of cash alone will not explain the accounting basis months later when you prepare the annual accounts.

4. Check who is entitled to receive the dividend

Dividends follow share rights. Review the company's articles and the rights attached to each class of shares before deciding how to allocate a payment.

The model articles for private companies limited by shares require dividends to respect shareholders' rights. They also distinguish a shareholder resolution declaring a dividend from a directors' decision to pay an interim dividend. Your own company's articles may differ.

For example, assume two shareholders own 60 and 40 fully paid ordinary shares with identical dividend rights, and no special arrangements apply. A £10 dividend per share produces payments of £600 and £400. Paying the entire £1,000 to one shareholder simply because they need the money would not follow that assumed entitlement.

Different share classes, proposed waivers and changes involving family members need a more careful review. Raise these before payment rather than trying to explain an unexpected split afterwards.

5. Record the decision and prepare dividend vouchers

GOV.UK's guide to taking money out of a company says to record the directors' decision in minutes, including where there is only one director. Follow the applicable approval procedure under your articles.

For each dividend payment, prepare a voucher showing the date, company name, shareholder names and dividend amount. Give recipients a copy and retain one with the company records.

Make the record useful to somebody who was not present. Alongside the formal decision, retain the accounts considered, the total dividend, the allocation between shareholders and the intended payment arrangements. Check that the voucher and payment record agree.

A practical filing structure is one folder for each dividend, named with its date. Keep the supporting calculation, decision record, vouchers and payment evidence together. Add a short note explaining any accounting entries your accountant made. This is a suggested organisation method, rather than a prescribed government template.

6. Keep salary, dividends and directors' loans distinct

A dividend is not a deductible business expense when calculating Corporation Tax. It also does not become salary simply because you transfer the same amount every month.

Under the government's directors' loan guidance, money taken from the company that is not salary, a dividend, an expense repayment or repayment of money previously put into the business may be a director's loan. Keep records of borrowing and repayments; personal and company tax consequences can arise.

As a practical habit, use clear payment references and tell your bookkeeper what each withdrawal represents. Avoid a single unexplained “owner payment” label covering several different transactions. If you cannot identify the basis for a withdrawal, flag it promptly rather than assuming the year-end accounts will turn it into a dividend.

7. Allow for your personal dividend tax

The company's profit calculation and your personal tax calculation are separate. For 6 April 2026 to 5 April 2027, HMRC lists dividend tax rates of 10.75% for the basic-rate band, 35.75% for the higher-rate band and 39.35% for the additional-rate band. The annual dividend allowance is £500.

Available Personal Allowance and your other income also affect the result. Dividends can span more than one tax band, so applying one percentage to every payment may give the wrong answer.

Keep a running total of dividends received during the personal tax year, alongside salary and other income. Ask your accountant for a personal tax estimate and an appropriate amount to set aside. Review that estimate after a significant extra dividend, a new job or a change in other income, rather than relying on last year's bill.

What if a dividend has already been paid incorrectly?

Pause further withdrawals and gather the facts: payment dates, amounts, relevant accounts, earlier dividends and decision records. Keep the original evidence; do not backdate paperwork to make the transaction appear different.

The Insolvency Service's dividend guidance warns about payments exceeding available profits or made without proper procedure. Repayment and director's loan issues can arise. HMRC explains that a shareholder's knowledge of an unlawful distribution affects the repayment and tax analysis.

The appropriate correction depends on what happened. Ask your accountant to establish the accounting and tax treatment, and obtain legal or insolvency advice where needed. Relabelling a bank transaction is not, by itself, a remedy.

Your checklist before the next payment

• Bring the bookkeeping up to date and identify outstanding adjustments.

• Confirm the distributable-profit calculation, including earlier losses and dividends.

• Check the cash forecast and upcoming commitments.

• Review the articles, share rights and approval procedure.

• Record the decision and prepare matching dividend vouchers.

• Make and record the payment accurately, keeping the supporting documents together.

• Update your personal dividend total and tax estimate.

Consider making this a short scheduled review with your accountant before each proposed distribution. Send the reports in advance and keep a list of open questions. That creates a repeatable routine instead of a last-minute search through bank transfers at year end.

Support for limited company owners in Bromley, London and across the UK

Good dividend decisions depend on reliable bookkeeping and a joined-up view of company and personal tax. Mysimplytax's limited company accounting services include company accounts, Corporation Tax returns, director Self Assessment, payroll and bookkeeping support.

If you are planning your next withdrawal, contact Mysimplytax with your latest accounts, current bookkeeping reports and a record of dividends already paid. We can discuss the support your business needs and the information required to review its position.

General information for UK private company owners, not a calculation of your individual entitlement or tax liability. Sources and 2026/27 tax rates checked on 12 October 2026.